Lines companies better placed to roll out fibre network

A prominent infrastructure consultant argues lines companies such as Vector, rather than Telecom, are better placed to roll out fibre-optic cable as part of the nation’s imminent push to expand broadband coverage, speed and service.

Temple Investment partner Dr Paul Winton says there has been an underlying assumption from many media commentators over the past few months that the natural owner of a future telecommunications network will be Telecom, simply by virtue of its scale.

However, in terms of the most capital efficient way of rolling out telecommunications infrastructure, a large percentage of New Zealand is covered by poles and wires feeding electricity everywhere in the country.

Dr Winton argues that lines companies can add to that existing infrastructure for 30-50% of what a telecommunication company would have to pay to either buy access or build their own holes in the ground.

“Internationally, the key challenge with fibre is that 70-80% of the cost is just digging holes in the ground, so if you can get that cost down it changes the economics materially. It means you can roll out significantly faster and get much more bang per government buck,” he says.

And there’s no way Telecom could receive the money in National’s larger, more ambitious plan for fibre rollout says Dr Winton, unless it becomes structurally separated.

Even if Telecom does separate, it will still be easier and cheaper for local lines companies to lay fibre beside their existing lines, which would align infrastructure, “So in 10 years when we decide that we need to underground the power lines, you underground them both together. When you need to manage them, you don’t need to attend a truck to roll out for your power, and another truck to roll out for your phone – one company can manage both,” says Dr Winton.

A new fibre rollout is potentially as big as the existing lines business – around $1-2 billion dollars, and the current lines business is worth about $1 billion nationally.

Goldman Sachs JBWere analyst Matt Henry says the likes of Vector are agnostic about who the service providers are that use their networks, and currently have gas, electricity and telecommunications already.

“Vector does have some advantages in rolling out fibre – it has a significant amount of empty duct around Auckland city which they can blow fibre through and there’s other methods of putting fibre on Vector’s existing assets: you can string fibre along power lines. There are empty gas mains you could use as well."

Vector has made their interest in telecommunications investment public before, saying it has the capability and scale to build a $1 billion fibre network in Auckland, and has had partnerships with the government before, such as the NEAL network linking schools on the North Shore.

But even if National does make it to power, however, talk of a glorious country-wide fibre rollout is premature. Many commentators have noted that there are quite a few steps to go between "we’re going to spend x amount on fibre" and the actual implementation of it, and that National’s policy is still light on detail five days before the general election.

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2 Comments & Questions

Apart from online games, free pirated downloads and television (entertainment) what other applications demand faster broadband?? The world of expensive medicine was supposed to leap forward with fast broadband (ie in other 1st world economies - which already have fast broadband) but it hasn’t. There is still congestion in Sydney's fast broadband network at 5 PM when all the school kids get online with their trivial pursuits.
Seems to me that some serious logic needs to be injected into the debate - as it will become our Channel Tunnel - expensive and efficient, which few can afford.

Certainly medical facilities with access to high speed (100mb+) internet make good use of it. One obvious use is transferring digital xrays to specialists within minutes (possibly seconds) of them being taken instead of the old, slow develop and courier method much of New Zealand currently uses.

What about the reduction in time and cost of travel due to the ability to easily and efficiently video conference? Surely any business can see the efficiencies in that?

Who knows what applications will require fibre in 5 - 10 years time?

And if Sydney's fast broadband network can't cope when the school kids get on then it is obviously cannot be that good a network.